The Unassuming Economist

According to a new report by Jan-Emmanuel De Neve and George Ward: “The overwhelming importance of having a job for happiness is evident throughout the analysis, and holds across all of the world’s regions. When considering the world’s population as a whole, people with a job evaluate the quality of their lives much more favorably than those who are unemployed. The importance of having a job extends far beyond the salary attached to it, with non-pecuniary aspects of employment such as social status, social relations, daily structure, and goals all exerting a strong influence on people’s happiness.” Continue reading here.

A new report by Richard Easterlin, a pioneer of the study of the link between income and happiness, looks into whether China’s income growth has made people happier. He writes: “In the past quarter century China’s real GDP per capita has multiplied over five times, an unprecedented feat.1 By 2012 virtually every urban household had, on average, a color TV, air conditioner, washing machine, and refrigerator. Almost nine in ten had a personal computer, and one in five, an automobile. Rural households lagged somewhat behind urban, but these same symptoms of affluence, which were virtually nonexistent in the countryside in 1990, had become quite common by 2012.2 In the face of such new-found plenitude, one would suppose that the population’s feelings of well-being would have enjoyed a similar multiplication. Yet, as will be discussed, well-being today is probably less than in 1990.” The full report is worth reading.

The IMF’s forthcoming World Economic Outlook will have a chapter on what drives the decline in the labor share of income in many countries around the world. Previewing the chapter (see figure above), IMF Managing Director Lagarde wrote that “trade and technological innovation have allowed countries to grow the economic pie and improve living standards, while lifting hundreds of millions of people out of poverty. Yet more could be done to mitigate the unwelcome side-effects seen in some places—including a rise in income inequality, job losses in shrinking sectors, and protracted economic and social problems across structurally weaker regions.”

For earlier work on inequality and the decline in labor share of income, see Krugman’s post for a summary, this F&D article for a longer description or this working paper for the gory details.

Below is the executive summary of a new IMF report:

“This cluster report takes stock of and explores opportunities for trade integration in Latin America and the Caribbean (LAC). Drawing on a set of 12 analytical studies that will be issued as working papers, the report examines the determinants of trade, explores the potential to enhance LAC’s trade integration, and assesses the associated economic and social effects. To deepen understanding of the region’s policy options and trade strategies, the report also incorporates the views of LAC country authorities based on responses to a survey. This provides an opportunity to examine the alignment of recommendations based on the analytical findings with the region’s current trade policy priorities, with the caveat that the survey was conducted between late 2015 and mid-2016, prior to the most recent developments in the global trade landscape.

The report finds that LAC can reap important growth benefits from further trade integration. With trade integration below that of other regions, there is scope for LAC to increase trade as an engine of growth and help offset the weaker economic outlook without adversely affecting overall income inequality. While there is potential to enhance both inter- and intra-regional trade integration, renewed political momentum within LAC in support of greater trade openness could provide an important impetus to further intra-regional trade integration in particular. In this context, regional trade integration could be promoted through a regional trade agreement, convergence of trade rules and regulatory standards, and measures to support trade facilitation. Strategies to bolster the region’s inter-regional integration could be centered on unilateral liberalization as a complement to existing efforts to expand LAC’s network of trade agreements.

This report also emphasizes the importance of complementary policies. Continued regional efforts to strengthen infrastructure and human capital would be useful as part of a broad growth strategy. But they can also enhance trade integration, including by facilitating participation in global value chains which may offer new opportunities for technology transfer, and are critical to diversifying and upgrading the complexity of LAC’s exports. Finally, strengthened social safety nets can help lessen adjustment costs linked to further integration and promote an equitable distribution of gains from trade.”

A new IMF working paper studies “the relationship between international trade, economic growth and inequality with a focus on Latin America and the Caribbean. The paper combines two approaches: First, [this paper employs] a cross-country panel framework to analyze the macroeconomic effects of international trade on economic growth and inequality considering the strength of trade connections as well as characteristics of countries’ export markets and products. Second, [this paper considers] event studies of past episodes of trade liberalization to extract general lessons on the impact of trade liberalization on economic growth and its structure and inequality. Both approaches consistently point to two broad messages: First, trade openness and connectivity to the center of the trade network has substantial macroeconomic benefits. Second, [no] statistically significant or economically sizable direct impact of trade on overall income inequality.”